Filing summary
Entity discrepancy: The supplied filing is for Broadleaf Capital Partners, Inc., not Red Cat Holdings, Inc. It is a Form 10-Q for the quarter ended September 30, 2013, with nine-month results also presented. The financial statements are unaudited except the December 31, 2012 balance sheet.
Business context
Broadleaf describes itself as a diversified investment holding company seeking new investments after selling its Canyon Shadows investment in 2012. Its active operating business is Pipeline Nutrition USA, a startup selling endurance-sports nutritional products. The company reports that Pipeline had generated sales but had not yet produced positive cash flow.
Financial performance and position
| Metric | Period / date | Reported value |
|---|---|---|
| Sales | Nine months ended September 30, 2013 | $45,509, versus $21,600 in 2012 |
| Gross profit | Nine months ended September 30, 2013 | $13,975; gross margin about 30.7%, versus $4,283 and 19.8% in 2012 |
| General and administrative expenses | Nine months ended September 30, 2013 | $113,762, versus $140,770 in 2012 |
| Net income (loss) | Nine months ended September 30, 2013 | $(99,969), versus income of $920,666 in 2012 |
| Sales | Three months ended September 30, 2013 | $22,836, versus $13,146 in 2012 |
| Gross profit | Three months ended September 30, 2013 | $4,605; gross margin about 20.2%, versus $434 and 3.3% in 2012 |
| Net income (loss) | Three months ended September 30, 2013 | $(70,105), versus $(36,220) in 2012 |
| Cash and cash equivalents | September 30, 2013 | $22,964 on the balance sheet |
| Net cash used in operating activities | Nine months ended September 30, 2013 | $(114,663), versus $(232,372) in 2012 |
| Total notes payable | September 30, 2013 | $60,383, including $40,663 current and $19,720 long-term; accrued interest was $18,222 |
| Total assets / stockholders’ deficit | September 30, 2013 | $51,354 / $(51,600) |
The filing reports current liabilities exceeding current assets by $31,880. It reports no income tax expense. No separate EBITDA figure is provided.
Changes and management commentary
- Nine-month sales increased by $23,909, principally from Pipeline Nutrition; management says investment income ceased after the Canyon Shadows sale.
- The prior-year nine-month profit included a $927,318 gain on the investment sale and $138,304 of debt-forgiveness income. Their absence is a major reason results shifted to a loss in 2013.
- Nine-month G&A declined, which management attributes largely to prior-year investment due-diligence fees. Third-quarter G&A increased year over year; management cites operating costs and an inventory write-off related to formula irregularities, later corrected in subsequent deliveries.
- Management is seeking additional capital and investment or acquisition opportunities. It discusses possible equity issuance, conversion of promissory notes, and acquisitions, but provides no specific forecast or assurance of success.
Liquidity, risks and contingencies
- Going concern: The filing says substantial doubt exists about the company’s ability to continue as a going concern. It cites recurring losses, an accumulated deficit of $14,360,205, limited cash, and defaulted debt. Management says additional capital and profitable operations are needed and warns it may have to cease operations if funding is unavailable.
- Debt: Two notes were in default; creditors had not pursued collection. The notes include 10% unsecured obligations and a $30,000 related-party loan to the subsidiary at 4%, secured by Pipeline inventory. Accrued interest totaled $18,222.
- Other risks: The filing identifies financing needs, possible shareholder dilution, limited trading liquidity and penny-stock restrictions, reliance on early-stage business growth, and uncertainty around the use of net operating loss carryforwards. It reports no open or pending legal proceedings.
- Controls: Management describes controls as effective, but also identifies significant deficiencies involving limited experienced personnel, inadequate segregation of duties, and no audit committee or independent financial expert. No auditor attestation on internal controls was included.
Important facts to verify
- Confirm the intended issuer: this filing names Broadleaf Capital Partners, Inc., not Red Cat Holdings, Inc.
- Reconcile cash reported as $22,964 on the balance sheet and cash flow statement with the $22,946 stated in MD&A.
- Review the going-concern disclosure, defaulted notes, maturity classification, and related-party loan terms.
- Clarify the controls disclosure, which calls controls effective while also describing significant deficiencies, and check the period dates in that section.
- Assess Pipeline’s sales, margins, inventory quality, cash needs, and ability to generate positive cash flow; the filing gives no quantified outlook.